Former Federal Reserve Chairman Alan Greenspan speaks out on the costs of government activism

NEW YORK — March 3, 2011 — In an article to be published in the forthcoming issue of International Finance, Dr. Alan Greenspan, former chairman of the Federal Reserve, issues a major analysis of the U.S. government’s economic recovery and reform efforts since the collapse of Lehman Brothers in September 2008.

Greenspan calculates that long-term fixed corporate investment “is now at levels, relative to cash flow, that we have not experienced since 1940.” This shortfall, he explains, accounts for much of the tepid recovery and current abnormally high levels of unemployment.

Applying a range of analytical and historical lenses, and data-sifting techniques, Greenspan concludes that the primary cause of the malaise is the exceptional level of government activism during the past two years. “Although the actions the government took in the immediate aftermath of the Lehman Brothers shutdown were necessary and appropriate responses to the crisis,” he writes, “these actions are not necessary any longer, and could in fact be crippling our chances of a full long-term recovery.”

Greenspan argues that the real problems with government activism began with the stimulus package of early 2009 and the failure to phase out the “temporary” actions taken during the last quarter of 2008. He argues that this fostered a degree of risk aversion to investment in illiquid fixed capital, on the part of both corporations and individuals, that was most evident in our longest-lived assets — real estate, both nonresidential and residential. “Without the abnormal weakness in long-lived assets,” he writes, “the current unemployment rate would be well below 9%.”

This article will be published in the Spring 2011 issue of International Finance. Media wishing to access a PDF of this article may download a complimentary copy from the Council on Foreign Relations website listed below, or by contacting [email protected].

Article: “Activism.” by Alan Greenspan. International Finance. Published Online: March 3, 2011 (DOI: 10.1111/j.1468-2362.2011.01277.x).


International Finance publishes lucid, policy-relevant writing in macroeconomics and finance backed by rigorous theory and empirical analysis. In addition to the core double-refereed articles, the journal publishes non-refereed themed book reviews by invited authors, debate pairings on contemporary economic challenges featuring top scholars, and commentary pieces by major policy figures. It is edited by Dr. Benn Steil, Director of International Economics at the Council on Foreign Relations.

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